Question 1

Which of the following firms would be expected to have a high ROE?

Accepted Answer

A)  a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
B)  a high-end fashion retailer that has a very high mark-up on all items it sells 
C)  a brokerage firm that has high levels of leverage 
D)  a grocery store chain that has very high turnover, selling many multiples of its assets per year 
A)  a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
B)  a high-end fashion retailer that has a very high mark-up on all items it sells 
C)  a brokerage firm that has high levels of leverage 
D)  a grocery store chain that has very high turnover, selling many multiples of its assets per year

Question 2

What is a firm's net income?

Accepted Answer

A)  the difference between the sales and other income generated by a firm, and all costs, taxes, and expenses incurred by the firm in a given period 
B)  the last or "bottom" line of the income statement 
C)  a measure of the firm's profitability over a given period 
D)  all of the above 
A)  the difference between the sales and other income generated by a firm, and all costs, taxes, and expenses incurred by the firm in a given period 
B)  the last or "bottom" line of the income statement 
C)  a measure of the firm's profitability over a given period 
D)  all of the above

Question 3

WorldCom classified $3.85 billion in operating expenses as long-term investments. How would this make WorldCom's financial statements more attractive to investors?

Accepted Answer

A)  by decreasing depreciation 
B)  by reducing capital expenditures 
C)  by raising its reported earnings 
D)  by boosting its cash flows 
A)  by decreasing depreciation 
B)  by reducing capital expenditures 
C)  by raising its reported earnings 
D)  by boosting its cash flows

Question 4

Use the table for the question(s) below.
  
-Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2008 and 2009. What does the change in the operating margin between these two years imply about the company?

Accepted Answer

A)  The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. 
B)  The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. 
C)  The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009. 
D)  The leverage of Xenon Manufacturing fell slightly between 2008 and 2009. 
A)  The efficiency of Xenon Manufacturing has significantly risen between 2008 and 2009. 
B)  The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2008 and 2009. 
C)  The efficiency of Xenon Manufacturing has significantly fallen between 2008 and 2009. 
D)  The leverage of Xenon Manufacturing fell slightly between 2008 and 2009.

Question 5

Which of the following best describes why a firm produces financial statements?

Accepted Answer

A)  to use as a tool when planning future investments within a firm 
B)  to increase the intrinsic value of a firm 
C)  to provide a means for interested outside parties such as creditors to obtain information about a firm, with an overview of the short- and long-term financial condition of a business 
D)  to show the daily activities a firm has undertaken in the previous financial year, and what activities are planned for the near future 
A)  to use as a tool when planning future investments within a firm 
B)  to increase the intrinsic value of a firm 
C)  to provide a means for interested outside parties such as creditors to obtain information about a firm, with an overview of the short- and long-term financial condition of a business 
D)  to show the daily activities a firm has undertaken in the previous financial year, and what activities are planned for the near future

Question 6

Which of the following statements regarding the income statement is INCORRECT?

Accepted Answer

A)  The income statement shows the cash flows and expenses at a given point in time. 
B)  The income statement shows the flow of revenues and expenses generated by a firm between two dates. 
C)  The last or "bottom" line of the income statement shows a firm's net income. 
D)  The first line of an income statement lists the revenues from the sales of products or services. 
A)  The income statement shows the cash flows and expenses at a given point in time. 
B)  The income statement shows the flow of revenues and expenses generated by a firm between two dates. 
C)  The last or "bottom" line of the income statement shows a firm's net income. 
D)  The first line of an income statement lists the revenues from the sales of products or services.

Question 7

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company?

Accepted Answer

A)  Investors may consider this firm to be a growth company. 
B)  Investors believe the company's assets are not likely to be profitable since its market value is worth less than its book value. 
C)  The firm's market value is more than its book value. 
D)  The value of the firm's assets is greater than their liquidation value. 
A)  Investors may consider this firm to be a growth company. 
B)  Investors believe the company's assets are not likely to be profitable since its market value is worth less than its book value. 
C)  The firm's market value is more than its book value. 
D)  The value of the firm's assets is greater than their liquidation value.

Question 8

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Accepted Answer

The new loan entry should show

Question 9

Use the table for the question(s) below.
  
-If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in stockholders' equity between 2007 and 2008?

Accepted Answer

A)  The company is very profitable because it is obviously collecting receivables faster. 
B)  The company is selling its property, plant and equipment, which may result in a long-term deficiency in production capacity. 
C)  The company's net income in 2008 was negative. 
D)  No conclusions can be drawn regarding stockholders' equity without additional information. 
A)  The company is very profitable because it is obviously collecting receivables faster. 
B)  The company is selling its property, plant and equipment, which may result in a long-term deficiency in production capacity. 
C)  The company's net income in 2008 was negative. 
D)  No conclusions can be drawn regarding stockholders' equity without additional information.

Question 10

How does a firm select the date for preparation of its balance sheet?

Accepted Answer

The balance sheet is prepared

Question 11

What is a firm's gross profit?

Accepted Answer

A)  the difference between the sales and other income generated by the firm, and all costs, taxes, and expenses incurred by a firm in a given period 
B)  the difference between sales revenues and the costs 
C)  the difference between sales revenues and cash expenditures associated with those sales 
D)  all of the above 
A)  the difference between the sales and other income generated by the firm, and all costs, taxes, and expenses incurred by a firm in a given period 
B)  the difference between sales revenues and the costs 
C)  the difference between sales revenues and cash expenditures associated with those sales 
D)  all of the above

Question 12

Convex Industries has inventories of $218 million, current assets of $1.4 billion, and current liabilities of $504 million. What is its quick ratio?

Accepted Answer

A)  1.17 
B)  0.94 
C)  2.81 
D)  2.35 
A)  1.17 
B)  0.94 
C)  2.81 
D)  2.35

Question 13

What is the need for the notes to the financial statements when a firm's operations are already documented in the financial statements?

Accepted Answer

Not all actions of the firm can be direc

Question 14

Which of the following is NOT an operating expense?

Accepted Answer

A)  interest expense 
B)  depreciation and amortization 
C)  selling, general, and administrative expenses 
D)  research and development 
A)  interest expense 
B)  depreciation and amortization 
C)  selling, general, and administrative expenses 
D)  research and development

Question 15

Which of the following is NOT one of the financial statements that must be produced by a public company?

Accepted Answer

A)  the balance sheet 
B)  the income statement 
C)  the statement of cash flows 
D)  the statement of activities 
A)  the balance sheet 
B)  the income statement 
C)  the statement of cash flows 
D)  the statement of activities

Question 16

A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows?

Accepted Answer

A)  as an outflow under operating activities 
B)  as an outflow under investment activities 
C)  as an outflow under financial activities 
D)  not recorded on the statement of cash flows 
A)  as an outflow under operating activities 
B)  as an outflow under investment activities 
C)  as an outflow under financial activities 
D)  not recorded on the statement of cash flows

Question 17

Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $millions)
 
Refer to the income statement above. Luther's net profit margin for the year ending December 31, 2005 is closest to ________.

Accepted Answer

A)  11.61% 
B)  5.80% 
C)  9.28% 
D)  13.93% 
A)  11.61% 
B)  5.80% 
C)  9.28% 
D)  13.93%

Question 18

What are the requirements of section 404 of SOX?

Accepted Answer

A)  It requires that senior management return any profits or bonuses resulting from stock sales during any period covered by financial statements that must later be restated. 
B)  It requires that auditors do not perform any non-auditing tasks for the companies they audit. 
C)  It requires that audit partners rotate every five years. 
D)  It requires that senior management and the boards of public companies attest to the effectiveness and validity of their financial control process. 
A)  It requires that senior management return any profits or bonuses resulting from stock sales during any period covered by financial statements that must later be restated. 
B)  It requires that auditors do not perform any non-auditing tasks for the companies they audit. 
C)  It requires that audit partners rotate every five years. 
D)  It requires that senior management and the boards of public companies attest to the effectiveness and validity of their financial control process.

Question 19

Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $millions)
 
Refer to the income statement above. Luther's return on assets (ROA) for the year ending December 31, 2005 is closest to ________.

Accepted Answer

A)  24.32% 
B)  48.64% 
C)  19.46% 
D)  1.99% 
A)  24.32% 
B)  48.64% 
C)  19.46% 
D)  1.99%

Question 20

Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
 
Refer to the balance sheet above. What is Luther's net working capital in 2006?

Accepted Answer

A)  $16.8 million 
B)  $296.0 million 
C)  $33.6 million 
D)  $8.4 million 
A)  $16.8 million 
B)  $296.0 million 
C)  $33.6 million 
D)  $8.4 million

Exam 2: Introduction to Financial Statement Analysis

Which of the following firms would be expected to have a high ROE?

What is a firm's net income?

WorldCom classified $3.85 billion in operating expenses as long-term investments. How would this make WorldCom's financial statements more attractive to investors?

Use the table for the question(s) below. -Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the operating margin for 2008 and 2009. What does the change in the operating margin between these two years imply about the company?

Which of the following best describes why a firm produces financial statements?

Which of the following statements regarding the income statement is INCORRECT?

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company?

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Use the table for the question(s) below. -If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in stockholders' equity between 2007 and 2008?

How does a firm select the date for preparation of its balance sheet?

What is a firm's gross profit?

Convex Industries has inventories of $218 million, current assets of $1.4 billion, and current liabilities of $504 million. What is its quick ratio?

What is the need for the notes to the financial statements when a firm's operations are already documented in the financial statements?

Which of the following is NOT an operating expense?

Which of the following is NOT one of the financial statements that must be produced by a public company?

A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows?

Luther Corporation Consolidated Income Statement Year ended December 31 (in $millions) Refer to the income statement above. Luther's net profit margin for the year ending December 31, 2005 is closest to ________.

What are the requirements of section 404 of SOX?

Luther Corporation Consolidated Income Statement Year ended December 31 (in $millions) Refer to the income statement above. Luther's return on assets (ROA) for the year ending December 31, 2005 is closest to ________.

Luther Corporation Consolidated Balance Sheet December 31, 2006 and 2005 (in $ millions) Refer to the balance sheet above. What is Luther's net working capital in 2006?

Corporate Finance and the Financial Manager

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters